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Sfeir Assures Hariri on ‘Stability’ of Lebanon’s Economic, Financial System

Aug 28

Sfeir Assures Hariri on ‘Stability’ of Lebanon’s Economic, Financial System

Prime Minister Saad Hariri held talks with Salim Sfeir, the chairman of the Association of Banks in Lebanon who assured the Premier on the stability of Lebanon’s monetary and economic system after the latest credit rating downgrade, VDL (100.5) radio station said on Tuesday.

Sfeir had assured earlier that “the economic situation, the Lebanese pound and the banking situation in Lebanon are stable,” and that the status of Lebanese banks has not changed as a result of reports issued by Standard & Poor's and FitchRatings international rating agencies.

About conversions from the local currency into dollars and the outflow of foreign exchange deposits, Sfeir said this tendency “started earlier four month ago, but it calmed down as soon as the parliament and government kicked off some serious work and adopted the state budget.”

Asked whether the banks were able to withstand all the pressures exerted on them, he said: 'We hope that officials will be well informed about the difficulties that banks bear to increase the strength of the money market and help the Lebanese economy and serve customers.'

Last week, Fitch bumped Lebanon down to 'CCC' while Standard & Poor's kept it at 'B-/B' with a negative outlook.

'The downgrade reflects intensifying pressure on Lebanon's financing model, increasing risks to the government's debt servicing capacity,' Fitch said in a statement.

S&P said it could still lower Lebanon ratings over the next year if banking system deposits and the central bank's foreign exchange reserves continued to fall.

'Non-resident depositors and foreign investors will likely remain cautious of Lebanon unless the government is able to... implement structural reforms to reduce the large budget gap and improve business activity,' it said.

Growth in Lebanon has plummeted in the wake of repeated political deadlocks in recent years, compounded by the 2011 breakout of civil war in neighbouring Syria.

The country's public debt stands at more than 86 billion dollars, or higher than 150 percent of GDP, according to the finance ministry.

Eighty percent of that debt is owed to Lebanon's central bank and local banks.

Lebanon's finance ministry said the Fitch and S&P reports were 'a reminder of the importance of reducing the deficit and adopting reforms'.

Lebanon has promised donors to slash public spending as part of reforms to unlock $11 billion in aid pledged at a conference in Paris last year.

Last month, parliament passed the 2019 budget, which is expected to trim Lebanon's deficit to 7.59 percent of gross domestic product -- a nearly 4-point drop from the previous year.